UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





x
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
quarterly period ended March 31, 2009





OR





x
            Transition Report Pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
      1934


For the
transition period from __________ to __________





Commission
File Number 001-14015





APPLIED
ENERGETICS, INC.





(Exact
Name of Registrant as Specified in Its Charter)





Delaware
              
              77-0262908(State
      or Other Jurisdiction of Incorporation orOrganization)
              
              (IRS
      Employer Identification
Number)





3590
      East Columbia StreetTucson,
      Arizona
                
                85714(Address
      of Principal Executive Offices)
                
                (Zip
      Code)





Registrant’s
telephone number, including area code    (520)
628-7415





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No  ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No  ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):





Large accelerated filer:  ̈
                                  
                                  Accelerated filer: x
                                  Non-accelerated filer:  ̈
                                  Smaller reporting company: ̈(Do not check if a smaller reporting company)





Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)Yes  ̈ No x





Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.  As of May 7, 2009, there
were 86,543,672
shares of the issuer's common stock, par value $.001 per share,
outstanding.





APPLIED
ENERGETICS, INC.


QUARTERLY
REPORT ON FORM 10-Q


TABLE
OF CONTENTS





PART
      I.  FINANCIAL INFORMATIONITEM
      1.
                      Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December
      31, 2008
                      
                      1Condensed
      Consolidated Statements of Operations for the three months ended March 31,
      2009 and 2008 (Unaudited)
                      
                      2Condensed
      Consolidated Statements of Cash Flows for the three months ended March 31,
      2009 and 2008 (Unaudited)
                      
                      3Notes
      to Condensed Consolidated Financial Statements
                      
                      4ITEM
      2.
                      Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      10ITEM
      4.
                      Controls
      and Procedures
                      
                      13PART
      II.  OTHER INFORMATIONITEM
      6.
                      Exhibits
                      
                      14SIGNATURES
                      
                      15


i


PART
I.  FINANCIAL INFORMATION





ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





APPLIED
ENERGETICS, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS





March 31, 2009
                
                
                December 31, 2008(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                15,282,987
                
                
                $
                15,467,386Accounts
      receivable
                
                
                1,327,686
                
                
                
                2,727,853Inventory
                
                
                251,794
                
                
                
                157,189Prepaid
      expenses and deposits
                
                
                337,392
                
                
                
                495,718Other
      receivables
                
                
                193,649
                
                
                
                17,183Total
      current assets
                
                
                17,393,508
                
                
                
                18,865,329Long
      term receivables - net
                
                
                253,130
                
                
                
                253,130Property
      and equipment - net
                
                
                3,337,005
                
                
                
                3,523,641Intangible
      assets - net
                
                
                24,600
                
                
                
                36,900Other
      assets
                
                
                15,972
                
                
                
                29,089TOTAL
      ASSETS
                
                $
                21,024,215
                
                
                $
                22,708,089LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                558,133
                
                
                $
                883,228Estimated
      loss on uncompleted contract
                
                
                98,239
                
                
                
                98,239Accrued
      expenses
                
                
                555,500
                
                
                
                326,697Accrued
      compensation
                
                
                1,548,116
                
                
                
                1,048,774Customer
      deposits
                
                
                81,381
                
                
                
                11,565Billings
      in excess of costs
                
                
                1,774
                
                
                
                -Current
      portion of capital lease obligations
                
                
                -
                
                
                
                2,028Total
      current liabilities
                
                
                2,843,143
                
                
                
                2,370,531Deferred
      rent
                
                
                -
                
                
                
                4,049Total
      liabilities
                
                
                2,843,143
                
                
                
                2,374,580Commitments
      and contingenciesStockholders’
      equitySeries
      A Convertible Preferred Stock, $.001 par value, 2,000,000 shares
      authorized;135,572 shares issued and outstanding at March 31, 2009 and at
      December 31, 2008
                
                
                136
                
                
                
                136Common
      stock, $.001 par value, 125,000,000 shares authorized; 86,527,672 shares
      issued and outstanding at March 31, 2009 and 86,370,026 shares issued and
      outstanding at December 31, 2008
                
                
                86,520
                
                
                
                86,370Additional
      paid-in capital
                
                
                74,813,023
                
                
                
                73,936,085Accumulated
      deficit
                
                
                (56,718,607
                )
                
                
                (53,689,082
                )Total
      stockholders’ equity
                
                
                18,181,072
                
                
                
                20,333,509TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                
                $
                21,024,215
                
                
                $
                22,708,089





See
accompanying notes to condensed consolidated financial statements
(unaudited)


- 1
-





APPLIED
ENERGETICS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)




For
      the three months ended
                March
      31,2009
              
              
              2008Revenue
              
              $
              2,587,398
              
              
              $
              1,961,090Cost
      of revenue
              
              
              2,401,446
              
              
              
              1,740,108Gross
      profit
              
              
              185,952
              
              
              
              220,982Operating
      expenses:General
      and administrative
              
              
              2,435,723
              
              
              
              3,365,464Selling
      and marketing
              
              
              238,023
              
              
              
              38,584Research
      and development
              
              
              517,661
              
              
              
              361,938Total
      operating expenses
              
              
              3,191,407
              
              
              
              3,765,986Operating
      loss
              
              
              (3,005,455
              )
              
              
              (3,545,004
              )Other
      (expense) incomeInterest
      expense
              
              
              (19
              )
              
              
              (1,313
              )Interest
      income
              
              
              31,027
              
              
              
              249,828Other
              
              
              -
              
              
              
              10Total
      other
              
              
              31,008
              
              
              
              248,525Net
      loss
              
              
              (2,974,447
              )
              
              
              (3,296,479
              )Preferred
      stock dividends
              
              
              (55,076
              )
              
              
              (295,091
              )Net
      loss attributable to common stockholders
              
              $
              (3,029,523
              )
              
              $
              (3,591,570
              )Net
      loss per common share – basic and diluted
              
              $
              (0.04
              )
              
              $
              (0.04
              )Weighted
      average number of shares outstanding, basic and diluted
              
              
              86,444,383
              
              
              
              80,404,613





See
accompanying notes to condensed consolidated financial statements
(unaudited)


- 2
-





APPLIED
ENERGETICS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





For
      the three months ended
                      March
      31,2009
                    
                    
                    2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                    
                    
                    (2,974,447
                    )
                    
                    $
                    (3,296,479
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                    
                    
                    195,148
                    
                    
                    
                    237,888Loss
      on equipment disposal
                    
                    
                    559
                    
                    
                    
                    -Deferred
      rent adjustment on purchase of premises
                    
                    
                    -
                    
                    
                    
                    118,594Non-cash
      stock based compensation expense
                    
                    
                    877,089
                    
                    
                    
                    1,349,361Changes
      in assets and liabilities:Accounts
      receivable
                    
                    
                    1,400,167
                    
                    
                    
                    1,415,842Other
      receivable
                    
                    
                    (176,466
                    )
                    
                    
                    (112,833
                    )Inventory
                    
                    
                    (94,605
                    )
                    
                    
                    (863,520
                    )Prepaid
      expenses and deposits
                    
                    
                    171,443
                    
                    
                    
                    118,367Accounts
      payable
                    
                    
                    (325,095
                    )
                    
                    
                    (563,443
                    )Billings
      in excess of costs
                    
                    
                    1,774
                    
                    
                    
                    306,509Accrued
      expenses, deposits and deferred rent
                    
                    
                    793,912
                    
                    
                    
                    (515,535
                    )Net
      cash used in operating activities
                    
                    
                    (130,521
                    )
                    
                    
                    (1,805,249
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:(Purchase)/disposal
      of land, building and equipment
                    
                    
                    3,226
                    
                    
                    
                    (2,324,513
                    )Net
      cash (used in)/provided by investing activities
                    
                    
                    3,226
                    
                    
                    
                    (2,324,513
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Dividends
      paid (preferred stock)
                    
                    
                    (55,076
                    )
                    
                    
                    -Principal
      payments on capital lease obligations
                    
                    
                    (2,028
                    )
                    
                    
                    (5,527
                    )Net
      cash used in financing activities
                    
                    
                    (57,104
                    )
                    
                    
                    (5,527
                    )Net
      decrease in cash and cash equivalents
                    
                    
                    (184,399
                    )
                    
                    
                    (4,135,289
                    )Cash
      and cash equivalents, beginning of period
                    
                    
                    15,467,386
                    
                    
                    
                    14,981,192Cash
      and cash equivalents, end of period
                    
                    $
                    15,282,987
                    
                    
                    $
                    10,845,903





See
accompanying notes to condensed consolidated financial statements
(unaudited)


- 3
-


APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





1.
            BASIS
      OF PRESENTATION





The
accompanying interim unaudited condensed consolidated financial statements
include the accounts of Applied Energetics, Inc. and its wholly owned
subsidiaries, Ionatron Technologies, Inc. and North Star Power Engineering, Inc.
as of March 31, 2009 (collectively, "company," "Applied Energetics," "we," "our"
or "us").  All intercompany balances and transactions have been
eliminated.  In the opinion of management, all adjustments (which
include normal recurring adjustments) necessary for a fair presentation of the
results for the interim periods presented have been made.  The results
for the three-month period ended March 31, 2009, may not be indicative of the
results for the entire year.  The interim unaudited condensed
consolidated financial statements should be read in conjunction with the
company's audited consolidated financial statements contained in our Annual
Report on Form 10-K.





The
following unaudited condensed financial statements are presented pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the company believes that the disclosures made are adequate to make the
information not misleading.





USE
OF ESTIMATES





The
preparation of consolidated financial statements in conformity with United
States Generally Accepted Accounting Principles (“GAAP”) requires management to
make estimates, judgments and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Management bases its
assumptions on historical experiences and on various other estimates that it
believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  In addition,
management considers the basis and methodology used in developing and selecting
these estimates, the trends in and amounts of these estimates, specific matters
affecting the amount of and changes in these estimates, and any other relevant
matters related to these estimates, including significant issues concerning
accounting principles and financial statement presentation.  Such
estimates and assumptions could change in the future, as more information
becomes known which could impact the amounts reported and disclosed
herein.  Significant estimates include revenue recognition under the
percentage of completion method of contract accounting, estimate to forecast
loss on a contract under the completed contract method of accounting, the
valuation of inventory, and estimate to forecast expected forfeiture rate on
stock-based compensation.





RECENT
ACCOUNTING PRONOUNCEMENTS





The FASB
has issued Statement of Financial Accounting Standard (“SFAS”) No. 107-1,
“Interim Disclosures about Fair Value of Financial Instruments” and Accounting
Principles Board (“APB”) Opinion No. 28 “Interim Financial
Reporting”.  SFAS 107-1 is intended to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies.  This statement is effective for interim reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009.  The adoption of the standard is not expected to
have a significant impact on the company’s consolidated financial
statements.




In
November 2007, the FASB Emerging Issues Task Force (“EITF”) issued EITF 07-5,
Determining Whether an instrument is Indexed to an Entity’s Own Stock. As a
result of EITF 07-5, freestanding warrants and certain other instruments
containing protective features, which provide for adjustments to the exercise or
conversion price if the entity subsequently issues shares or other
equity-related contracts to a new investor with more favorable pricing, will no
longer be eligible to be recorded in equity. EITF 07-5 became effective for us
on January 1, 2009. EITF 07-05 has not impacted us to date as we have no
outstanding instruments that contain these protective features. We will assess
the impact of EITF 07-5 if and when we issue instruments that contain these
protective features.


CASH
AND MARKETABLE SECURITIES





At March
31, 2009, we had approximately $15.3 million of cash and cash
equivalents.   Our cash position decreased during the first three
months of 2009 by approximately $184,000.  During the first three
months of 2009, operating activities used $131,000 in cash.





We
anticipate that short-term and long-term funding needs will be provided by the
cash flows from current and future contracts and existing cash and cash
equivalents.  We determined that we have sufficient working capital to
fulfill existing contracts and expected contracts in 2009 and
2010.


- 4
-


APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





2.
            ACCOUNTS
      RECEIVABLE





Accounts
receivable consists of the following:





March 31, 2009
                    
                    
                    December 31, 2008Contracts
      receivable
                    
                    $
                    1,173,156
                    
                    
                    $
                    1,677,929Costs
      and estimated earnings on uncompleted contracts
                    
                    
                    154,530
                    
                    
                    
                    1,049,9241,327,686
                    
                    
                    
                    2,727,853Less:Allowance
      for doubtful accounts
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    1,327,686
                    
                    
                    $
                    2,727,853Long
      term receivable, net (contract retention)
                    
                    
                    253,130
                    
                    
                    
                    253,130$
                    1,580,816
                    
                    
                    $
                    2,980,983








Contracts
receivable at March 31, 2009 and December 31, 2008 are expected to be collected
within a year.





Costs and
Estimated Earnings on Uncompleted Contracts


March 31, 2009
                        
                        
                        December 31, 2008Costs
      incurred on uncompleted contracts
                        
                        $
                        20,575,799
                        
                        
                        $
                        20,118,499Estimated
      earnings
                        
                        
                        1,600,620
                        
                        
                        
                        1,564,814Total
      billable costs and estimated earnings
                        
                        
                        22,176,419
                        
                        
                        
                        21,683,313Less:Billings
      to date
                        
                        
                        22,023,663
                        
                        
                        
                        20,633,389Total
                        
                        $
                        152,756
                        
                        
                        $
                        1,049,924Included
      in accompanying balance sheet:Unbilled
      costs and estimated earnings on uncompleted contracts included in accounts
      receivable
                        
                        $
                        154,530
                        
                        
                        $
                        1,049,924Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                        
                        
                        (1,774
                        )
                        
                        
                        -Total
                        
                        $
                        152,756
                        
                        
                        $
                        1,049,924


- 5
-


APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





3.         INVENTORY





Our
inventories consist of the following:





March 31, 2009
                  
                  
                  December 31, 2008Raw
      materials
                  
                  $
                  155,896
                  
                  
                  $
                  124,849Work-in-process
                  
                  
                  95,898
                  
                  
                  $
                  32,340Total
                  
                  $
                  251,794
                  
                  
                  $
                  157,189





4.         PROPERTY
AND EQUIPMENT





Our
property and equipment consist of the following:





March 31, 2009
                    
                    
                    December 31, 2008Land
      and buildings
                    
                    $
                    2,072,215
                    
                    
                    $
                    2,072,215Equipment
                    
                    
                    2,798,860
                    
                    
                    
                    3,214,640Furniture
      and building improvements
                    
                    
                    1,107,245
                    
                    
                    
                    1,107,245Software
                    
                    
                    875,298
                    
                    
                    
                    787,331Total
                    
                    
                    6,853,618
                    
                    
                    
                    7,181,431Less
      accumulated depreciation and amortization
                    
                    
                    (3,516,613
                    )
                    
                    
                    (3,657,790
                    )Net
      property and equipment
                    
                    $
                    3,337,005
                    
                    
                    $
                    3,523,641





Periodically,
we evaluate general impairment of assets.  As an element of our annual
business planning process  conducted in the fourth quarter of each
year, we consider expected revenues and resulting cash flow from operations.
Revenue planning is based upon actual and expected contract awards as the
majority of our revenues are sourced from Government contracts. During this
process, we evaluate the current carrying values of all long-lived assets on our
books.  We compare these values against business plans to determine if
carrying values are recoverable.





Our most
recent asset impairment test was performed on February 18, 2009, when we
determined that as of December 31, 2008 the net book values of long-lived assets
were recoverable through expected undiscounted business cash flows based on
anticipated and actual future revenue bookings and backlog. We will continue to
evaluate the carrying values in the future.  We evaluate impairments as
such circumstances warrant.


- 6
-


APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





5.
            SHARE-BASED
      COMPENSATION





Share-Based Compensation –
Employees and Directors





For the
three months ended March 31, 2009 and 2008, share-based compensation expense
totaled $877,000 and $1.35 million, respectively.





There was
no related income tax benefit recognized because our deferred tax assets are
fully offset by a valuation allowance. During the three months ended March 31,
2009, we granted 105,000 shares of restricted stock to one newly hired employee
and two non-employee consultants, which vest up to 3 years.  The
weighted average fair value of the restricted stock grants of $0.24 per share is
being expensed over the requisite service period.  Additionally,
during the three months ended March 31, 2009, we granted options to purchase an
aggregate of 800,000 shares of our common stock in connection with a contract
extension to our then President, Chief Executive Officer and Chairman of the
Board.  These options have a weighted average exercise price of $0.50
and all of these options have now vested fully.





The
compensation committee determined to offer employees the right to exchange their
“out of the money” options for new three-year, fully vested options with an
exercise price of $0.50 per share.  The exchange offer was affected in
lieu of broad based equity compensation grants in 2008.  In connection
with the exchange offer, which was completed on March 9, 2009, employees and
members of the board were offered the right to exchange two existing options for
one new option.  In the exchange offer, the company issued 1,751,269
new options in exchange for 3,502,536 old, 2004 Plan options.  The
associated non-cash expense for this exchange was approximately
$400,000.





On March
31, 2009, the company and Dana A. Marshall entered into a separation agreement
(the “Separation Agreement”) pursuant to which Mr. Marshall no longer serves as
President, Chief Executive Officer or Chairman of the Board. Pursuant to the
terms of the Separation Agreement, Mr. Marshall has received a $135,000 lump sum
payment and will receive twelve (12) monthly payments of $29,167.  In
addition, the company agreed to accelerate the vesting of 137,500 unvested
shares of restricted stock and unvested options to purchase 800,000 shares of
common stock.  As such, all of Mr. Marshall’s equity awards were
modified pursuant to the SFAS No. 123(R), “Share-Based Payment”, and all
appropriate charges have been expensed.





The
weighted average grant-date fair value of all outstanding option grants was
$0.35 and $2.20, per share, for the three months ended March 31, 2009 and 2008,
respectively.  We determine the fair value of share-based awards at
their grant date, using a Black-Scholes Option-Pricing Model applying the
assumptions in the following table.


Three Months Ended March
31,2009
                  
                  
                  2008Expected
      life (years)
                  
                  2
      years
                  
                  
                  4
      yearsDividend
      yield
                  
                  
                  0.0
                  %
                  
                  
                  0.0
                  %Expected
      volatility
                  
                  
                  67.3
                  %
                  
                  
                  65.0
                  %Risk
      free interest rates
                  
                  
                  1.3
                  %
                  
                  
                  2.8
                  %Weighted
      average fair value of options at grant date
                  
                  $
                  0.35
                  
                  
                  $
                  2.20





During
the three months ended March 31, 2009, 272,427 shares of restricted stock vested
and 31,500 shares of restricted stock were forfeited, no options were exercised,
3,502,536 were tendered to us for cancellation in the exchange offer and
1,191,062 options were forfeited.  As of March 31, 2009, $1.4 million
of total unrecognized compensation cost related to restricted stock is expected
to be recognized over a weighted average period of approximately 1.5
years.  Due to the exchange offer and forfeitures, all SFAS No. 123(R)
expense for outstanding options has been included in current or prior Statements
of Operations.





Warrants –
Non-Employees





At March
31, 2009 and December 31, 2008 there were outstanding warrants to purchase
approximately 1.1 million and 1.1 million shares of common stock, respectively,
which were either (i) issued in connection with the August 2007 financing, (ii)
issued to outside consultants, or (iii) outstanding prior to our reverse merger
in March 2004.


- 7
-


APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





6.         COMPREHENSIVE
LOSS





Total
comprehensive loss consisted of the following:





Three Months Ended March
31,2009
                  
                  
                  2008Comprehensive
      LossNet
      loss
                  
                  $
                  (2,974,447
                  )
                  
                  $
                  (3,296,479
                  )Other
      comprehensive loss:Unrealized
      gain (loss) on available-for-sale securities
                  
                  
                  -
                  
                  
                  
                  (375,000
                  )Total
                  
                  $
                  (2,974,447
                  )
                  
                  $
                  (3,671,479
                  )





7.         SIGNIFICANT
CUSTOMERS





Approximately
100% and 90% of revenues for the three-month periods ended March 31, 2009 and
2008, respectively, are generated from either the U.S. Government or contractors
to the U.S. Government.  Ten percent of our 2008 revenue was generated
from customers within the aerospace, high-voltage and technology
industries.





8.
            NET
      LOSS PER SHARE





Basic net
income (loss) per common share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period before giving effect to stock options, stock
warrants, restricted stock units and convertible securities outstanding, which
are considered to be dilutive common stock equivalents.  Diluted net
income (loss) per common share is calculated based on the weighted average
number of common and potentially dilutive shares outstanding during the period
after giving effect to convertible preferred stock, stock options, warrants and
restricted stock units. Contingently issuable shares are included in the
computation of basic earnings (loss) per share when issuance of the shares is no
longer contingent. Due to the losses from continuing operations for the three
months ended March 31, 2009 and 2008, basic and diluted loss per common share
were the same, as the effect of potentially dilutive securities would have been
anti-dilutive.





Potentially
dilutive securities not included in the diluted loss per share calculation, due
to net losses from continuing operations, were as follows:




Three Months Ended March
31,2009
                  
                  
                  2008Options
      to purchase common shares
                  
                  
                  2,690,519
                  
                  
                  
                  4,882,036Warrants
      to purchase common shares
                  
                  
                  1,091,605
                  
                  
                  
                  1,141,605Unvested
      restricted stock units
                  
                  
                  339,742
                  
                  
                  
                  1,357,950Convertible
      preferred stock
                  
                  
                  135,572
                  
                  
                  
                  690,000Total
      potentially dilutive securities
                  
                  
                  4,257,438
                  
                  
                  
                  8,071,591


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APPLIED
ENERGETICS, INC.


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


March 31,
2009


(Unaudited)





9.
            DIVIDENDS





As of
March 31, 2009, we had 135,572 shares of our 6.5% Series A Convertible Preferred
Stock outstanding.  A dividend was declared and paid in cash on May 1,
2009 to the holders of record as of April 15, 2009.





Dividends
on Preferred Stock are accrued when the amount and kind of the dividend is
determined and  are payable quarterly on the first day of February,
May, August and November, in cash or shares of common stock, at the discretion
of the company.





10.
            COMMITMENTS
      AND CONTINGENCIES





LITIGATION





In July
2006, two class action complaints were filed by George Wood and Raymond Deedon
against Applied Energetics, Inc. (formerly Ionatron, Inc.) and its founders.
Each of the class actions was filed in the United States District Court for the
District of Arizona and allege, among other things, violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5, claiming that we issued
false and misleading statements concerning the development of our counter-IED
product. The court consolidated these cases, and a consolidated amended
complaint was served. The action has been dismissed against Joseph C. Hayden and
Stephen W. McCahon with prejudice, and is proceeding against us and the
remaining defendants. We are unable to evaluate the likelihood of an unfavorable
outcome in this matter or estimate the range of potential loss, if any. However,
we intend to defend ourselves vigorously in these legal
proceedings.





In
September 2006, a derivative action was filed by John T. Johnasen in Arizona
State Court, Pima County, against certain of our current and former officers and
directors, alleging, among other things, breach of fiduciary duty.  On
April 30, 2008, the state court continued a stay of the derivative action until
30 days notice from any party or until further court order terminating the
stay.





In
addition, we may from time to time be involved in legal proceedings arising from
the normal course of business.  As of the date of this report, we have
not received notice of any other legal proceedings.





11.
            SUBSEQUENT
      EVENTS





On April
24, 2009, the Board approved a reorganization plan, which included the closing
of our St. Louis, Missouri operation and included a reduction in force of
22%. In connection with this reorganization, Joseph Hayden was appointed
Chief Operating Officer and principal executive officer.


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ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





Our
discussion and analysis of the financial condition and results of operations
should be read in conjunction with the unaudited condensed consolidated
financial statements and the related disclosures included elsewhere herein and
in Management’s Discussion and Analysis of Financial Condition and Results of
Operations included as part of our Annual Report on Form 10-K for the year ended
December 31, 2008.





CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain
statements in this Quarterly Report on Form 10-Q constitute forward-looking
statements within the meaning of the securities laws.  Forward-looking
statements include all statements that do not relate solely to the historical or
current facts, and can be identified by the use of forward looking words such as
"may", "believe", "will", "expect", "expected", "project", "anticipate",
"anticipated”, “estimates", "plans", "strategy", "target", "prospects" or
"continue".  These forward looking statements are based on the current
plans and expectations of our management and are subject to a number of
uncertainties and risks that could significantly affect our current plans and
expectations, as well as future results of operations and financial condition
and may cause our actual results, performances or achievements to be materially
different from any future results, performances or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
our actual results to differ materially from our expectations are described in
Item 1A.  (Risk Factors) of our Annual Report on Form 10-K for the
year ended December 31, 2008.  In making these forward-looking
statements, we claim the protection of the safe-harbor for forward-looking
statements contained in the Private Securities Reform Act of
1995.  Although we believe that the expectations reflected in such
forward-looking statements are reasonable, there can be no assurance that such
expectations will prove to have been correct.  We do not assume any
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions, or changes in other factors affecting such
forward-looking statements.





OVERVIEW





Applied
Energetics is a developer and manufacturer of applied energy systems, primarily
for military applications, utilizing our proprietary knowledge of high
performance lasers, high-voltage electronics, advanced dynamic optics and
atmospheric and plasma energy interactions.  We apply these
technologies to deliver innovative solutions to urgent military missions,
including neutralizing improvised explosive devices (“IEDs”) among other high
priority missions of U.S. and allied military forces.  Additionally,
we develop and manufacture high-voltage and laser products for government and
commercial customers for a range of applications.





On March
28, 2009 James McDivitt, the then Lead Independent Director resigned from the
Board for personal reasons.  On March 31, 2009, we entered into a
separation agreement with Dana Marshall, resulting in Mr. Marshall no longer
serving as our Chief Executive officer, President, Director and Chairman of the
Board.  Pursuant to the terms of the Separation Agreement, Mr.
Marshall has received a $135,000 lump sum payment and will receive twelve (12)
monthly payments of $29,167.  In addition, we agreed to accelerate the
vesting of 137,500 unvested shares of restricted stock and unvested options to
purchase 800,000 shares of common stock.  On March 31, 2009, General
James Feigley was appointed non-executive Chairman of the Board.





On April
24, 2009, the Board approved a reorganization plan, which included the closing
of our St. Louis, Missouri operation and included a reduction in force of
22%. In connection with this reorganization, Joseph Hayden was appointed
Chief Operating Officer and principal executive officer.


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RESULTS
OF OPERATIONS





COMPARISON
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008:





2009
                  
                  
                  2008Revenue
                  
                  $
                  2,587,398
                  
                  
                  $
                  1,961,090Cost
      of revenue
                  
                  
                  2,401,446
                  
                  
                  
                  1,740,108General
      and administrative
                  
                  
                  2,435,723
                  
                  
                  
                  3,365,464Selling
      and marketing
                  
                  
                  238,023
                  
                  
                  
                  38,584Research
      and development
                  
                  
                  517,661
                  
                  
                  
                  361,938Other
      (expense) income:Interest
      expense
                  
                  
                  (19
                  )
                  
                  
                  (1,313
                  )Interest
      income
                  
                  
                  31,027
                  
                  
                  
                  249,828Other
                  
                  
                  -
                  
                  
                  
                  10Net
      loss
                  
                  $
                  (2,974,447
                  )
                  
                  $
                  (3,296,479
                  )





REVENUE





Revenue
increased approximately $626,000 for the three months ended March 31, 2009
compared to the three months ended March 31, 2008, which was attributable to
increases in revenue from Counter-IED projects of approximately $742,000 from
the U.S. Marine Corps contract received in June 2008, and from our LGE projects
of approximately $80,000 from a funded modification to the current
contract.  These increases were offset by a reduction in revenue on
High Voltage projects of $197,000.





COST
OF REVENUE





Cost of
revenue increased approximately $661,000 compared to the three months ended
March 31, 2008, which was in line with the increase in revenues of 32% for the
same period.  In 2008, cost of revenue included gains from the sale of
inventory, which had previously been written down to lower of cost or market of
$36,000.  Cost of revenue includes manufacturing labor, fringe and
overhead, and an allocation of allowable general and administration and research
and development costs in accordance with the terms of our government
contracts.





GENERAL
AND ADMINISTRATIVE





General
and administrative expenses decreased approximately $930,000 for the three
months ended March 31, 2009 compared to the three months ended March 31,
2008.  Salaries, benefits and temporary help decreased by $74,000,
which is a result of reduced headcount of $472,000 offset by separation expenses
of approximately $398,000.  In addition, non-cash employee
compensation decreased by $466,000, operational expenses decreased by $85,000,
insurance and professional fees decreased by $14,000, travel and related
expenses decreased by $56,000 and depreciation and amortization decreased by
$43,000.  Applied labor and overhead was favorable as a direct result
of increased revenues and research and development activities of
$192,000.




In
connection with the re-organization plan approved by the Board in April, 2009,
the company expects to experience a reduction in general and administrative
expenses of approximately $1.2 million in the current year.




SELLING
AND MARKETING





Selling
and marketing expenses increased approximately $199,000 for the quarter ended
March 31, 2009 from the same period in 2008, reflecting increased allocation of
time of existing personnel and costs associated with professional conferences,
exhibitions, marketing literature, and updated web content.


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-





RESEARCH
AND DEVELOPMENT





Internal
research and development expenses increased approximately $156,000 during the
three months ended March 31, 2009 as compared to the same period in 2008. The
increase was primarily due to the additional staff and materials associated with
the development of proprietary high voltage and laser technologies.





Our
short-term research and development goals are to develop efficient and compact
laser sources, novel high-voltage electrical sources, efficient optical systems
to extend the range of our LGE system and to engineer laser hardware to smaller
and more rugged technologies as an essential element of moving our LGE
technology to practical fielding.  Longer-term research objectives
include development of tunable and eye safe laser sources to improve safety and
utility of LGE, adjunct military applications for lasers to expand accessible
military markets for our technology, and integrated weapon and counter-weapon
system technologies to facilitate our role as an integrated system
provider.





INTEREST
INCOME AND INTEREST EXPENSE





Net
interest income for the first quarter of 2009 was lower by approximately
$218,000 from the same period of 2008 primarily due to the lower balance of
invested funds and lower interest rates on our investments in 2009.





NET
LOSS





Our
operations for the three months ended March 31, 2009 resulted in a net loss of
approximately $3.0 million, a reduction of approximately $322,000 compared to
the $3.3 million loss for the same period of 2008.





LIQUIDITY
AND CAPITAL RESOURCES





At March
31, 2009, we had approximately $15.3 million of cash and cash
equivalents.  Our cash position decreased during the first quarter of
2009 by approximately $184,000.  During the first three months of
2009, we used $131,000 of cash in operating activities, which is comprised of
our net loss of $3.0 million, plus adjustments in depreciation and amortization
of $195,000, non-cash share-based compensation expense of $877,000 and loss on
equipment disposal of $1,000.  Changes in assets and liabilities that
provided cash include a decrease in accounts receivable of $1.4 million, in
billings in excess of costs of $2,000 and in accrued expenses, deposits and
deferred rent of $794,000, and decreases in prepaid expenses and deposits of
$171,000.  Changes in assets and liabilities that used cash were
increases in other receivables of $176,000 and in inventory of $95,000, and a
decrease in accounts payable of $325,000.





As part
of our total cash use during the first three months of 2009, investment
activities provided approximately $3,000.  Financing activities used
approximately $57,000 (primarily from the preferred stock cash dividend paid in
February 2009).





We
anticipate that short-term and long-term funding needs will be provided by the
cash flows from current and future contracts and existing cash and cash
equivalents.  We determined that we have sufficient working capital to
fulfill existing contracts and expected contracts in 2009 and 2010.





BACKLOG
OF ORDERS





At March
31, 2009, we had a backlog (workload remaining on signed contracts) of
approximately $2.7 million to be completed within the next twelve
months.  The backlog does not include proposals and contracts under
negotiation at March 31, 2009.





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ITEM
4.  CONTROLS AND PROCEDURES





EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES





Our
management, with the participation of our Principal Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2009.  Based on that evaluation, our Principal
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and
forms.





During
the three months ended March 31, 2009, there was no significant change in our
internal controls over financial reporting that has materially affected or which
is reasonably likely to materially affect our internal controls over
financial reporting.


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PART
II – OTHER INFORMATION





ITEM
6.     EXHIBITS





EXHIBIT
                    NUMBER
                  
                  DESCRIPTION10.1
                  
                  Agreement
      and Complete and Full General Release by and between Dana A. Marshall and
      the Registrant dated March 31, 200910.2
                  
                  Consulting
      Agreement between Dr. Stephen W. McCahon and the Registrant dated as of
      March 31, 2009.31.1
                  
                  Certification
      of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                  
                  Certification
      of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                  
                  Principal
      Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                  
                  Chief
      Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.


- 14
-





SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




APPLIED
      ENERGETICS, INC.By
              /s/ Joseph C. HaydenJoseph
      C. HaydenChief
      Operating Officer and Principal Executive
  Officer





Date:  May
11, 2009


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